Portfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
Portfolio heat is the sum of the risk on every open position at a given moment. If you have five trades each risking 1%, your portfolio heat is 5% — meaning a worst-case simultaneous stop-out on all five would cost 5% of equity.
Managing total portfolio heat prevents correlated positions from combining into an unexpectedly large loss. Most risk-aware traders cap total heat at 5–10% of equity regardless of the number of setups available.
Example
Open positions: Trade A risks $200, Trade B risks $150, Trade C risks $180. Portfolio heat = $530. On a $20,000 account that is 2.65% total risk. If all three get stopped out simultaneously, the account loses 2.65%.
Related Terms
Correlation
A measure of how closely two assets move together, ranging from −1 (perfectly opposite) to +1 (perfectly in sync).
IntermediateDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerMoney Management
The set of rules governing how capital is allocated, how large positions are, and how losses are limited across a portfolio of trades.
BeginnerPosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
BeginnerRisk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
BeginnerScaling In
Adding to a position in increments as price moves in your favour, building size only when the trade is proving itself right.
IntermediateUnsystematic Risk
Company- or sector-specific risk that can be reduced through diversification across uncorrelated assets.
IntermediateVolatility-Based Sizing
Adjusting position size inversely to market volatility so that each trade has a consistent dollar risk regardless of how much the asset moves.
Intermediate